Author: 0xWeilan

Affected by U.S. economic and employment data, the expectations for a restart of interest rate cuts have been fluctuating. The main pricing funds are entering and exiting unpredictably, compounded by cross-cycle long-hand selling and the rotation of funds within the market. The overall trend of the crypto market in August showed a "weak-strong-weak" pattern, with prices forming a "hump" shape.

BTC fell 6.49% for the month, closing at $108,247.95. The altcoin representative ETH surged 18.75%, closing at $4,391.83.

According to eMerge Engine, BTC is currently in the late stage of a bull market. In the June report, we predicted that BTC would initiate the fourth wave of increases in the third quarter and reach a new historical high. This prediction was confirmed in July, and as August began, the impact of the "tariff war" started to reflect in U.S. economic data, with both CPI and PCE showing signs of rebound. This led to continuous blows to the market's expectations for a restart of interest rate cuts in September, causing the U.S. stock market, which had been pricing in a high likelihood of rate cuts, to experience volatility. This volatility was transmitted to the crypto market through the Crypto Spot ETF, resulting in BTC, which had reached a historical high in the middle of the month, ultimately being repriced downward, a typical phenomenon of risk preference rebalancing.

During the volatility, funds did not continuously flow out, appearing indecisive. Overall, BTC still saw an inflow of $329 million this month. The fundamental reason for the price decline was the internal selling of cross-cycle long hands and sector rotation within the crypto market.

The significant selling by ancient whales locked in profits and squeezed the not-so-abundant liquidity, while simultaneously, tens of billions of dollars flowed from BTC into ETH both on and off the market. EMC Labs believes this collectively constitutes the fundamental reason for BTC's price returning to the "Trump bottom" (between $90,000 and $110,000) after reaching a historical high.

The market has basically completed the repricing of interest rate cut expectations, with implied pricing indicating "September rate cut, two cuts within the year, totaling 50 basis points." In the future, before September 17, there are still several economic employment and inflation data to be released, and the market will continue to experience fluctuations.

However, the restart of interest rate cuts, with the U.S. economy achieving a "soft landing" driven by AI capital expenditure and technology, and employment data declining but not deteriorating significantly, remains a high-probability event. EMC Labs holds a cautiously optimistic view on the September market, believing that after experiencing necessary short-term fluctuations, BTC will continue its fourth wave of increases.

Macroeconomic Finance: "Inflation Rebound" and "Cooling Employment" Pulling Interest Rate Cut Expectations

In August, the U.S. capital market was mainly controlled by the interplay of three variables: "performance of economic and inflation data, when the Federal Reserve will restart interest rate cut expectations, and concerns about the Fed's independence." The market overall showed a trend of first cooling, then heating, and then cooling again.

On August 1, employment data was released first. The U.S. unemployment rate rose month-on-month in July, with non-farm jobs increasing by 73,000, far below the previous expectation of 100,000. Meanwhile, the U.S. Bureau of Labor Statistics made significant downward revisions to the data for May and June, with the June revision exceeding 90%.

Following the release of this disappointing data, the Nasdaq fell 2.24% on the same day, with BTC following suit, dropping 2.17%. As a result of the data, FedWatch indicated that the probability of the Federal Reserve cutting rates by 25 basis points in September surged from the previous day's 37.7% to 75.5%.

On that day, the U.S. dollar index fell 1.23% and continued to decline thereafter. This data reignited the market's expectations for a rate cut in September, leading to a sustained rise in U.S. stocks and BTC, which reached a historical high of $124,533.00 on August 14.

On August 12, the U.S. released CPI data that met market expectations and did not have a significant impact on the market. However, the market, which had already fully priced in the rate cuts, remained highly sensitive to inflation data.

On August 14, PPI data was released, showing an annual growth of 3.3%, significantly higher than the market expectation of 2.5%. Concerns that rising production costs would eventually be passed on to consumers initially dampened market expectations for rate cuts. After reaching a historical high, BTC began to decline and continued to do so until the end of the month. During the same period, the tech-heavy Nasdaq started to weaken, with funds rotating from overvalued tech stocks into cyclical and consumer stocks, causing the Dow Jones to strengthen. This indicates that while expectations for rate cuts were not destroyed, the expected values were adjusted downward, and funds began to seek safer valuation targets.

On August 20, at the Jackson Hole global central bank conference, Federal Reserve Chairman Powell released his most dovish remarks of the year, suggesting that he would pay more attention to the cooling of the job market and might cut rates to promote a recovery in the job market. The market took this as a reassurance, with traders pricing the probability of a September rate cut at over 70% until the end of the month.

The core PCE released on August 29, while generally meeting expectations, recorded an annual growth of 2.9%, the highest since February 2025, indicating a slight increase in potential inflation pressure. All three major U.S. stock indices responded with declines, but the Dow Jones index's drop was significantly smaller than that of the Nasdaq.

U.S. PCE Index Annual Rate

By the end of the month, the market had fully priced in "September rate cut, two cuts within the year, totaling 50 basis points."

To push for rate cuts, President Trump escalated pressure on the Federal Reserve, directly announcing on social media at the end of the month the firing of Federal Reserve Governor Lisa Cook, who advocated against rate cuts, due to her "mortgage document fraud." This event further heightened market concerns about the independence of the Federal Reserve.

Crypto Assets: BTC Returns to the "Trump Bottom," ETH Inflows Set Historical Records

In August, BTC exhibited a "hump" pattern. At the beginning of the month, it was pressured by significantly revised employment data but quickly regained upward momentum driven by a rate cut probability exceeding 80%, reaching a historical high on August 14. After the release of the PPI data on the 14th, it entered a sustained downward trend for the latter half of the month.

Technically, BTC was pushed back to the "Trump bottom" (between $90,000 and $110,000) and temporarily broke the "first upward trend line" of this bull market and the important 120-day line.

BTC Price Daily Chart

On a monthly basis, after a continuous rebound for four months, BTC saw a single-month pullback of 6.49%, with trading volume slightly shrinking. The price decline of BTC this month can be viewed as a technical correction under the dual effects of "overpricing being revised" and "funds shifting." We believe that as the interest rate cut cycle restarts and market risk preferences change, mainstream funds will flow back into BTC, driving it to continue the fourth wave of increases in this cycle.

The decline in BTC is largely correlated with the Nasdaq and is related to expectations for interest rate cuts. It is generally believed that once the market enters a rate cut cycle, risk assets will continue to strengthen. Although BTC is also a high-volatility asset, within the crypto market, it is viewed as a more "blue-chip" asset compared to altcoins.

As the rate cuts approach and consensus around public chain assets strengthens, funds are accelerating their inflow into ETH.

Fund Flows: ETH Inflows Exceed BTC by Over $10 Billion

This month, the total inflow of funds into the crypto market reached $27.778 billion, including $16.414 billion in stablecoins, $3.420 billion in ETH Spot ETF, $7.485 billion in ETH corporate purchases, $226 million in SOL ETF, $1.505 billion in BTC corporate purchases, but $1.176 billion flowed out of BTC Spot ETF.

Crypto Market Fund Inflow Statistics (Monthly)

Currently, the main purchasing power for BTC shows that only $329 million flowed in through the BTC Spot ETF and corporate purchases, significantly lower than last month. This is the fundamental reason for BTC's weak performance this month.

In contrast, the ETH Spot ETF and ETH corporate purchases totaled $10.805 billion, setting a historical record. EMC Labs believes that there is a clear trend of funds flowing from BTC into ETH, both on and off the market.

ETH Fund Inflow Statistics (Monthly)

There are three reasons for this. First, the consensus around BTC in major countries like the U.S. has largely completed its diffusion over the past few years, and more funds are beginning to focus on the second-largest crypto asset, ETH. Second, as the U.S. enters a crypto-friendly period, the trend of using blockchain technology to transform traditional financial industries has begun to emerge, and as the native currency of the largest smart contract platform, ETH is receiving increasing attention and allocation from industrial capital. Finally, during this cycle, BTC has already reached a historical high, while ETH has not yet surpassed the previous bull market peak, combined with the historical experience that a low-interest-rate environment will eventually lead to an Altseason, speculative funds have poured into ETH, driving its price to rise rapidly.

Based on the restart of the interest rate cut cycle, the risks in production repricing, and the historical rate of Altseason, we proposed in last month's report that Altseason is opening up. We now believe that ETH is in the mid-stage of price rediscovery in this cycle, with significant upward potential remaining. As the interest rate cuts restart and risk preferences increase, a broader range of altcoin prices may also experience rapid increases driven by speculative buying.

Chip Structure: The Third Wave of Selling Continues

In addition to fund rotation, another important reason for the price divergence between BTC and ETH in August is that cross-cycle and intra-cycle long hands have initiated the third wave of selling in BTC's current cycle (previous bull markets only had two waves of selling).

In August, long hands accelerated their reduction, with a reduction scale exceeding 150,000 coins, including ancient accounts from the Satoshi era that had made substantial profits. These reductions drained the not-so-abundant inflow of funds, pushing prices down for rebalancing. Due to the massive scale of a single entity, the selling by ancient whales made the large sell-off data somewhat coincidental. Currently, the long hand holding scale is still higher than in February, and with subsequent liquidity increasing, it is expected that selling will continue.

Long Hands, Short Hands, Miners, and Centralized Exchange Holding Statistics

From the exchange's perspective, this month saw an outflow of 38,620 BTC, slightly less than last month, consistent with the characteristics of a bull market rising phase.

Conclusion

eMerge Engine shows that the BTC Metric is 0.375, indicating that BTC is in a rising continuation phase.

We believe that with the significant entry of treasury companies, Spot ETFs, and industrial capital, the crypto market has entered a new stage of "mainstreaming" development. For BTC, volatility will gradually decrease, and its correlation with U.S. stocks, especially the Nasdaq, will strengthen. For assets like ETH and SOL, the entry of mainstream capital is just beginning, and the diffusion of consensus will inevitably lead to a repricing.

As we enter September, when interest rate cuts are about to start, the market will not be smooth sailing; high valuations in the U.S. stock market and concerns about the Fed's independence will still trouble the market.

But the cycle will continue.

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